The definition of monetary aggregates is the total amount of money that circulates in an economy. They refer to the most liquid measures of the concept of money, so then it only includes those that are used as a means of payment.
They are a series of liabilities liquids issued by the money-issuing sector and in the hands of the holder of that money. Assumes a asset for those who have that money and a debt for the central bank that issues it.
Concept of monetary aggregates
There are several concepts of monetary aggregates. Among them are the set of different representative instruments or the total of financial assets, or the groupings of different kinds of money according to the liquidity of the assets they include.
What are the monetary aggregates?
Most central banks define four types of monetary aggregates:
- M1: also defined as money for transactions or narrow monetary aggregate. Refers to cash that are in the hands of the public, among which are notes and coins, as well as demand deposits held in monetary financial institutions and the State.
- M2: includes M1 and deposits short-term savings (with a maximum of two years), savings books, demand accounts and daily repurchase agreement that users have in the financial system.
- M3: This is the sum of M1 and M2, which includes the shares of funds in the money market and money market instruments such as treasury bills, private bonds and time deposits.
- M4: includes M3 plus treasury notes, guarantees to corporate promissory notes and certificates of deposits.
In some countries, broader monetary aggregates such as M5, M6 and M7 are used.
Examples of monetary aggregates include, for example, cash in circulation and demand deposits such as M1, term deposits of up to two years such as M2 or securities other than shares with a maturity of less than two years such as M3.